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DuPont acquires Danisco for $6.3B, forms industrial biotech, biofuels giant

| January 11, 2011

In Delaware, DuPont has agreed to buy Danisco for $6.3 billion, a 25% premium over its current share price — $5.8 billion in cash and the assumption of $500 million of Danisco debt.

DuPont, which already has the Dupont Danisco Cellulosic Ethanol JV with Danisco in biofuels, is seeking to expand its presence in the industrial biotechnology and biofuels arena.

The deal-onomics

The acquisition is expected to be financed with about $3 billion in existing cash and the remainder in debt. The transaction is expected to close early in the second quarter.

The deal values Danisco at 12.8 times earnings before interest, taxes, depreciation and amortization, according to Dupont.

The acquisition is to be effected through a public tender offer by a subsidiary of DuPont for all of Danisco’s outstanding shares at a price of DKK 665 in cash per share. Danisco has stated its intention to recommend the offer to its shareholders.

DuPont has set its 2011 earnings per share outlook at a range of $3.30 to $3.60 per share. The anticipated impact of this transaction would reduce that outlook by $.30 to $.45 per share on a reported basis.

Overall, the agricultural and industrial biotechnology business represented 32 percent of Dupont’s business in 2010, and the Danisco acquisition will increase this to around 50 percent, according to analysts.

More about Danisco and Genencor

Danisco has specialty food ingredients, including enablers, cultures and sweeteners, that generate about 65% of total sales; and Genencor, its enzymes division, represents 35% of total sales.  Danisco and DuPont are already joint venture partners in the development of cellulosic ethanol technology.  Danisco has nearly 7,000 employees, with operations in 23 countries.

Genencor is supplying enzymes to a number of biofuels-related companies, but is most closely associated with the DuPont Danisco Cellulosic Ethanol unit, as well as the development of renewable materials in the form of bioisoprene, a bio-based substitute for a critical tire ingredient. Biosioprene was named Renewable Chemicals Product of the Year for 2010 by Biofuels Digest.

More about Dupont

Dupont has a number of business units and joint ventures that have taken it far into the world of industrial biotechnology and the food business. The company’s signature entity is its Pioneer Hi-Bred subsidiary, which it acquired a 20 percent stake in during 1997, and acquired the remaining 80 percent for $7.7 billion in 1999. Pioneer is the world’s leading developer and supplier of advanced plant genetics, providing high-quality seeds to farmers in more than 90 countries.

In addition to Pioneer, Dupont has an ethanol joint venture with BP and British Sugar, which is constructing a wheat ethanol plant in Hull, UK, the aforementioned 50 percent interest in Dupont Danisco Cellulosic Ethanol with Danisco, and a 50 percent interest in biobutanol pioneer Butamax.

Reaction from Dupont and Danisco

Dupont CEO Ellen Kullman said “This transaction is a perfect strategic fit with our growth opportunities and will help us solve global challenges presented by dramatic population growth in the decades to come, specifically related to food and energy.”

Jørgen Tandrup, Danisco’s Chairman of the Board of Directors, comments: “DuPont and Danisco make a powerful combination and will benefit from each others’ complementary strengths and skills.”

Tom Knutzen, Danisco’s CEO, comments: “Danisco has become a leader in food ingredients, bio-based solutions and industrial biotech. Danisco will make up an important part of DuPont, which is committed to develop new business and drive further growth.”

What it means

According to Dupont, “Upon closing, this transaction would establish DuPont as a clear leader in industrial biotechnology with science-intensive innovations that address global challenges in food production and reduced fossil fuel consumption.”

In a 2010 interview with the Digest, former Dupont chairman and CEO Chad Holliday tipped Dupont’s increasing interest in industrial biotechnology, telling Digest readers that he saw it as being “bigger than polymers” for Dupont’s future.

The Digest’s Take

Thought Dupont had not made a major acquisition since Pioneer Hi-Bred in 1999, the move would not surprise most observers, which had seen a steady increase in the JV activity of the company in this sector, and the clear strategic focus on increasing its presence in industrial biotechnology as the highest-growth area which could take advantage of Dupont’s substantial research and business assets.

DDCE. In the near term for bioenergy and renewable chemicals, the acquisition will simplify the decision-making for the future of Dupont Danisco Cellulosic Ethanol, which has been developing opportunities in the processing of corn cobs and switchgrass to advanced biofuels, and signals an increased commitment to the broad sector, although it should not be expected that DDCE will waver from its licensing-based strategy, once it has completed its first plant and demonstrated the viability and economics of its technology.

Other JVs – Vivergo, BAL, Butamax. The acquisition would not be expected to directly impact the company’s investment in Butamax, its biobutanol JV with BP, although through Genencor it has the potential to acquire more visibility and credibility within the ethanol sector, where it expects to sign agreements to convert plants from corn and cane ethanol to biobutanol over the next few years. Nor is there expected to be a major near-term impact in the Hull, UK wheat ethanol plant JV with BP and British Sugar, Vivergo. Dupont has invested $40 million in Vivergo, which is constructing its 110 million gallon facility at Saltend in Hull. Nor is immediate impact expected on the BAL-DuPont JV, making cellulosic ethanol from seaweed.

Renewable chemicals and bio-based materials. In the near-term, expect to see the biggest impact in the development of renewable chemicals that would offer Dupont feedstock supply alternatives, and facility siting alternatives that are closer to the company’s customer base.

Among potential areas for development of renewable alternatives:  adhesives, resins, sealants, carpet and flooring products, cleaners and disinfectants, lubricants, monomers, paints, coatings, and finishings, performance fibers and fabrics. plastics, elastomers, and inks.

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